It happens every year: as the World Economic Forum publishes its annual Global Competitiveness Report, national media around the world headline their reports with their own country’s ranking, congratulating or criticising the government accordingly.

But this isn’t a football league table, where one team’s win is another’s loss: it is possible for a country to go down in the ranking even if it improves its competitiveness. If that seems counter-intuitive, it’s because the word “competitiveness” can be misleading. It implies competition in the sporting sense, with countries pitted against each other in a zero-sum game – and that’s not how to interpret the index.

Instead, think of a country’s competitiveness as its level of productivity: its ability to produce more outputs with the same amount of inputs. Clearly, it is possible for all countries to improve at once. Competitiveness, in this sense, matters for three reasons.

The first, and ultimately most important, is that more productive countries can create greater wealth, higher living standards and more happiness for their citizens.

Secondly, more productive countries offer greater returns on investment. This matters to companies choosing whether to invest in physical capital. But it also means that national investments in areas such as infrastructure, education and skills development have greater potential to translate into economic growth.

Finally, competitiveness implies economic stability and resilience. Data analysed in last year’s Global Competitiveness Report found that the more competitive an economy was in 2007, the less severely it was affected by the recession that followed.